A. Explain the principle known as monetary policy ineffectiveness and discuss Lucas’ argument as to why it arises when agents have rational expectations.  B. In what respects did Lucas strengthen Friedman’s argument that monetary policy should be conducted in a predictable and stable manner? Both parts please.

A policy that results in slow and steady growth of the money supply is an example of   A-an “easy” monetary policy. B-a “passive” monetary policy. C-a “practical” monetary policy. D-an “active” monetary policy.

Suppose three economies are hit with the same temporary negative supply shock. In country A, inflationinitially rises and output falls; then inflation risesmore and output increases. In country B, inflationinitially rises and output falls; then both inflation andoutput fall. In country C, inflation initially rises andoutput falls; then inflation falls and output eventually increases. What type of stabilization approach dideach country take?

A central banker believes that current consumer spending is based on wealth rather than income and that monetary policy can have an impact on output in the short run but have an impact on prices only in the long run. This central banker's perspective. views are consistent with the classical liquidation Keynesian monetarist

“Autonomous monetary policy is more effective at changing output when lambda is higher.” Is this statement true, false, or uncertain? Explain your answer.

Exhibit: The Money Supply and Aggregate Demand If the Fed wants to encourage investment and expand the economy, it would conduct Group of answer choices an expansionary monetary policy such as an open market purchase. The results of such a policy are represented in Panel (a). a contractionary monetary policy such as an open market sale. The results of such a policy are represented in Panel (b). C) an expansionary monetary policy such as an open market sale. The results of such a policy are represented in Panel (a). D) a contractionary monetary policy such as an open market purchase. The results of such a policy are represented in Panel (a). Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.

B. Consider the following model where the monetary policy will be the only policy variable affecting demand for output. For expositional purposes the income velocity of money is held constant. With these assumptions the aggregate demand for output can be written in logs as: mt + v = Pt+ Yt The above equation is the equation of exchange in logs (equation that addresses the relationship between money and price level, and between money and nominal GDP. The equation tells us that total spending (M x V) is equal to total sales revenue (P x Y)). To complete the model we need to add the aggregate supply equation and a money supply rule. yt = y'+ a(pt - Et-1pt1) (2) mt = Byt-1+Et (3) Given that agents form expectations rationally, find a solution for (i) yt and (ii) pt. Is there any scope in this model for the policy authorities to influence the output through systematic stabilisation policy? Explain your answer.

Discuss the general implications of pursuing strategy I versus strategy II, emphasizing what would be, in your view, the “positive” and the “negative” aspects of each strategy Under what type of Central Bankp references would strategy II be the optimal strategy? Can strategy I be the optimal strategy assuming a different type of Central Bank preferences?

Q1. Describe two ways through which the consolidated government (fiscal and monetary authorities) can finance a deficit. Q2. The figure below shows the evolution of two different measures of inflation. Which of these series is showing the evolution of a measure of headline inflation, and which one is showing the evolution of a measure of underlying inflation? Justify your answer, and give an example of a measure of underlying inflation. Q3. Consider the following quote by Ed Prescott: “The policy implication of [my] research is that costly efforts at stabilization are likely to be counterproductive.” Provide a brief justification of Prescott’s view based on the results of the Real Business Cycle Theory studied in class. Q4.Provide one argument in favour and one argument against the following statement: “Ideally, it would be optimal to set the nominal interest rate to zero at all times.” Q.5Evaluate the validity of the following claim: “Under a fixed exchange rate, the monetary…

a. According to the Misperceptions theory, what would be the effect of an unanticipated monetary expansion shock on real interest rate (r), real output (Y), and price level (P) in the short and in the long-run? Why? Explain with details.b. Does your answer change if the shock is expected/anticipated? Why? Show how.